Archive for the ‘arbitration’ Category

John A. E. Pottow (University of Michigan Law School), Jacob Brege and Tara J. Hawley (J.D. Candidates, University of Michigan Law School) have published “A Presumptively Better Approach to Arbitrability”, Canadian Business Law Journal, Vol. 53, No. 3, March 2013/U of Michigan Law & Econ Research Paper No. 13-012/U of Michigan Public Law Research Paper No. 339. Here’s the abstract:

One of the most complex problems in the arbitration field is the question of who decides disputes over the scope of an arbitrator’s purported authority. Courts in Canada and the United States have taken different approaches to this fundamental question of “arbitrability” that necessarily arises when one party disputes the contractual validity of the underlying “container” contract carrying the arbitration clause. If arbitration is a creature of contract, and contract is a product of consensual agreement, then any dispute that impugns the underlying consent of the parties to the container contract implicates the arbitration agreement itself (i.e., no contract, no arbitration agreement).

The U.S. approach of “separability” dates back a half-century to a Supreme Court case that was controversial when it was decided and remains so today. The Supreme Court has added several more decisions trying to clarify its arbitrability rules within just the past few years. The Canadians too have tried to sort out this mess, seizing upon the hoary legal distinction between law and fact, also offering recent Supreme Court pronouncements. Neither country’s approach is normatively or functionally satisfying.

After discussing and critiquing the two approaches comparatively, we offer our own proposal. We too deploy legal presumptions, but in our case we focus on what we contend are the two most relevant criteria: (1) the nature of the legal challenge to the underlying container contract, and (2) the type of contract at issue. Challenges to consent in contract formation and contracts involving adhesion should be specially scrutinized by the courts before carting parties off to arbitration, whereas commercial agreements between sophisticated actors should presumptively be for arbitral resolution, even for “constitutive” challenges to the underlying contract.

Until a few years ago, scholars and practitioners shared in the view that Canada was an “arbitration-friendly” jurisdiction. Canadian courts, and in particular the Supreme Court of Canada, earned this reputation through a series of important decisions in which arbitration clauses were enforced in the consumer protection law context. These decisions reflected an emerging consensus among jurists that arbitration was a system of equal importance and legitimacy to the judicial system policed by the courts. Or so it appeared.

In 2011, the Supreme Court of Canada released its decision in Seidel v. Telus Communications Inc., in which a narrow majority of the Court held that an arbitration clause contained in a standard consumer contract was void in respect of certain provisions of the British Columbia Business Practices and Consumer Protection Act. Superficially, Seidel signaled a small but innocuous change to the Supreme Court’s approach to adjudicating statutory rights. The implications of the Court’s decision, however, are potentially far-reaching. In Seidel, the Supreme Court re-ignited a longstanding debate over the legitimacy of arbitration as a means of resolving consumer-related disputes.

This paper explores the law of consumer arbitration both before and after the Supreme Court of Canada’s landmark decision in Seidel. The authors find that Seidel re-opened what appeared in Canada to be a firmly closed Pandora’s Box. Whereas before Seidel courts would not interfere with arbitration agreements absent clear and express legislative language to the contrary, today no such certainty prevails. Contrary to the direction recently taken by U.S. courts, Seidel permits Canadian courts to rule against the arbitration of consumer claims on the basis of implied legislative intent and even at the expense of the arbitrator’s jurisdiction. The resulting uncertainty created by this approach means that counsel should, now more than ever, draft arbitration agreements with a view to their eventual litigation.

Alan Scott Rau (University of Texas at Austin School of Law, The Center for Global Energy, International Arbitration, and Environmental Law) has posted “Arbitrating ‘Arbitrability‘”, World Arbitration and Mediation Review, 2013/U of Texas Law, Public Law Research Paper No. 403. The abstract reads:

This paper was prepared for a presentation at the Institute for Transnational Arbitration/American Society of International Law program on “Gateway Issues in International Arbitration.”

It is quite common, in the case law and the secondary literature, to focus discussions in terms of “gateway” or “threshold” challenges to the arbitration of a commercial dispute. Like most metaphors, this is rife with ambiguity: The notion of a “gateway” may, purely as a semantic matter, direct us to distinguish between issues that must be resolved before a party can be permitted to proceed and fully adjudicate the “merits” of the dispute — issues that may after all include such things as the non-payment of fees, or the untimely making of an application — and those that need not be. Or alternatively, it may ask us to distinguish between issues that must be resolved before a party may even invoke arbitral jurisdiction — and those that may instead be left to the arbitrators themselves. And even within this second category, it is still frequently unclear whether: (1) the metaphor of a “gateway” is being used to evoke what is a logically prior prerequisite to arbitral jurisdiction — asking us, that is, to distinguish between those issues that (whenever raised) will condition the ultimate validity of an award — and those that do not; or whether (2) the term is being used, instead, to evoke what is merely chronologically prior to arbitral proceedings — asking us, that is, to distinguish between those issues that (whoever will have the final word on the subject) must be resolved before a party is permitted even to have access to the arbitral tribunal — and those that need not be.

These last two questions are often conflated, but ought best be kept distinct. I discuss the question of timing and chronology, which is largely a matter of efficiency, but only the former question, I think, is truly challenging. The inquiry is thus into the allocation of decisionmaking authority between courts and arbitrators. This question — the respective roles of courts and arbitral tribunals — is, in one form or another, the foundational, primal question around which our whole law of arbitration revolves.

It is obligatory these days to begin and end every discussion with the Supreme Court’s decision in First Options, and in particular Justice Breyer’s suggestion there that parties may entrust arbitrators with the power to decide jurisdictional questions — and if they have done so “clearly and unmistakably,” the tribunal’s decision on the subject will be entitled to the same deference as is any arbitral award. It seems fair to say that Justice Breyer’s discussion has often been overread. And in practice, and in positive law, the supposed lessons have now become marginalized — have dwindled into insignificance — to the point that to invoke them begins increasingly to sound hollow and perfunctory. This is why any requirement of “clear statement” — even if in theory made necessary by Justice Breyer’s taxonomy — is here so routinely and trivially satisfied.

This impression is reinforced by the common practice of fleshing out agreement through the use of institutional rules. Contractual incorporation of the Rules of the AAA — adopted precisely to take advantage of the hint dropped by Justice Breyer — is now routinely deemed to constitute party agreement to the arbitrability of “jurisdictional disputes.” This common reading has now become a default rule that treats a reference to the Rules as a simple “term of art” denoting the choice of a particular scheme for the allocation of power. And while the backstory, and the preconceptions, underlying other commonly-used bodies of institutional rules are entirely different, it was inevitable that U.S. courts have been led to treat all these facially-similar rules as identical.

If this is troubling in theory, one cannot avoid the impression that it doesn’t seem to make much of a difference in result. The point is illustrated nicely by two very recent decisions of our Second Circuit, the Thai-Lao and Schneider/Kingdom of Thailand cases. Reading them, it is hard to avoid the conclusion that in where U.S. arbitration law appropriately governs the agreement, the rules of arbitral institutions — however they are construed — are as likely as not to amount to a makeweight; it does no great harm to assume that they may be properly treated in the end as tangential to any actual decision. What seems “overdetermined” is that even if the challenges in such cases — such as the right of a non-signatory to compel arbitration, or the existence of an approved investment under a BIT — is somehow to be construed as “jurisdictional” (which I very much doubt) — U.S. law will properly, and through a default rule methodology, allocate the decision to arbitrators. The implication is that even transnational cases will be expected to remain within the framework of the present complex structure of our common law — notwithstanding the siren calls of “international consensus.”

An international arbitration court yesterday issued a ruling in which it concludes that the Republic of Ecuador has violated previous interim awards of the same court authorized under international law and a treaty between the United States and Ecuador to not attempt to prevent the execution of a sentence of 19,000 million against Chevron Corp. (NYSE: CVX). In previous decisions, the court warned that if the arbitration Chevron ended imposing “any loss arising from the implementation (of the judgment) would be losses for which (the Republic) would be responsible (with Chevron) under international law.”

Convened under the authority of the Bilateral Investment Treaty (BIT, according to its acronym in English) between the United States and Ecuador, and administered by the Permanent Court of Arbitration at The Hague, the tribunal found that Ecuador breached previous court rulings and ordered to explain why the Republic should not be ordered to pay compensation to Chevron for all damages resulting from attempts by plaintiffs to enforce a judgment arising out of an environmental lawsuit against the company in Lago Agrio, Ecuador.(more…)

Matthew J. Wilson (University of Wyoming – College of Law) has posted “Improving the Process: Transnational Litigation and the Application of Private Foreign Law in U.S. Courts”, New York University Journal of International Law and Politics (JILP), Vol. 45, 2013, forthcoming. The abstract reads:

Due to the current and anticipated stream of foreign law issues in U.S. courts and arbitration proceedings, it is necessary to explore additional ways to ensure accuracy and improve current procedures in applying foreign law. At the same time, it is also important to understand the issues and concerns underlying the application of foreign law in U.S. courts. In recent years, foreign law has increasingly gained greater public attention and political discourse has progressively focused on the use of foreign law by U.S. courts. Some of this attention has been politically charged and quite unfavorable. In fact, policymakers across the U.S. have advocated measures that would prohibit courts from using or relying on foreign law in certain instances. In many respects, much of the negative sentiment towards foreign law has been misdirected resulting in public confusion. Accordingly, an examination of the boundaries of the ongoing debate is necessary to clarify those areas in which foreign law can and should be applied without issue. To accomplish the above objectives, this article focuses on the legal requirements, practical aspects, and possible improvements of proving the law of a foreign country in U.S. courts. Before delving into these areas though, it is worthwhile to breakdown the opposition to the use and application of foreign law in U.S. courts to gain a better understanding of the attendant issues.